A Quick Look Back

When we first started researching and writing about multifamily conversions three years ago, the concept had just started garnering widespread attention, both in and out of commercial real estate circles.

The COVID-19 pandemic had devastated most commercial real estate sectors, including retail, which had already been struggling due to changing consumer shopping habits and the growth of ecommerce, and hospitality, which was on life support after business and leisure travel had slowed to a virtual standstill.

The office sector had been hit particularly hard; in Q4 2021, there was about 5.6 billion square feet of vacant office space in the US, most of it stemming from the lockdowns, restrictions and pervasive shift to remote and hybrid work brought on by the pandemic.

Multifamily Conversions and the Pandemic

While the number of multifamily conversions had slowly been growing over the previous decade, the concept was still considered a relative novelty. Then suddenly, due to the havoc the pandemic wreaked upon the world and commercial real estate, many commercial property owners, developers and investors were actively exploring the idea of converting their struggling assets to apartments, which were in high demand, to turn around their sinking fortunes.

Commercial Real Estate, Circa 2023

When we checked in again in Q3 2023, 18 months later, the worst of the pandemic was over. While some of the underlying conditions and dynamics that had led to a surge in residential conversions had changed, many persisted:

  • Demand for apartments was still high due to a mix of factors, including high mortgage rates, elevated home prices and the on-going housing shortage in the US.
  • Industrial real estate was still thriving, due largely to the continued expansion of ecommerce and the growing need for modern distribution facilities.
  • Retail was a mixed bag; while revenues at top tier malls grew by 5% from 2019-2022, the Wall Street Journal reported in August 2023 that the values of some malls had declined by as much as 70% in recent years.
  • Hotels had rebounded somewhat due to the lifting of COVID-era travel restrictions, but many properties never recovered from the financial damage the pandemic inflicted, especially older hotels.
  • Meanwhile, the office sector’s troubles had worsened considerably. In Q2 2023, the office vacancy rate averaged 18.6% across major US cities, up 5.9% from Q4 2019, the last full quarter before the onset of the pandemic.

Hotel, Mall and Office to Apartment Conversions Grow

As a result, the number of hotel to apartment conversions more than doubled from 2021 to 2022, while the number of office to residential conversions grew to 42,500 from 23,100 from 2022 to 2023. In January 2024, approximately 192 shopping malls were planning on converting space to apartments.

A Record Number of Multifamily Conversions

Now, nearly two years after our last update, the economy, commercial real estate, capital markets, travel, shopping and spending habits and work policies all have shifted again, leading to a record number of multifamily conversions, especially of office buildings, but also of hotels, shopping malls, strip malls and other types of non-residential buildings, including schools, hospitals and even convents.

In Part 7 of our on-going series on apartment conversions, we provide an update on office to apartment conversions, which, for numerous reasons, have emerged as the most popular type of multifamily conversion by far since the onset of the pandemic and the type that has received the most attention.

Office To Multifamily Conversions

RentCafe reports that as of February 2025, there were 70,700 units in the OTM conversion pipeline, a new record and a substantial 56% jump from the 45,200 units that were delivered in 2023, when we last provided an update.

Office conversions accounted for 42% of the nearly 169,000 units that were planned or underway across property sectors, the most of any type of property by far. According to CBRE, as of Q3 2024, 71 MSF of former office space –1.7% of all US office stock– was in some stage of conversion.

While the number of office to apartment conversions is unquestionably growing, one reason for the big spike between 2023 and 2025 is that many conversions that were in the pipeline the last two years weren’t completed on time so delivery kept getting pushed back. In fact, of the 55,339 apartments that were in some stage of development in January 2024, only 3,709 were completed by the end of the year. Since then,19,021 new units have been added to the US office to apartments conversion pipeline, swelling it to its current, record-setting level.

Office to Apartment Conversions Vary Greatly by Market

The number of conversions planned or underway varies greatly by market. As of February 2025, New York City led the nation with 8,310 units in its pipeline, followed by Washington, DC, with 6,533 units planned or underway and Los Angeles, with 4,388 units in its conversions pipeline. Detroit brought up the rear with just 962 units planned or underway.

More Newer Office Buildings Are Being Converted to Apartments

Another notable trend is that a growing number of relatively newer office buildings constructed between 1990 and 2019 are being converted into apartments. As of February 2025, newer office buildings accounted for only 1.27% of all units delivered thus far, but 7.03% of all future projects, reports RentCafe.

Nationwide, in early February 2025, over 1.2 billion square feet of office space—14.8% of total US office inventory—was considered suitable for conversion, based on analysis from Commercial Edge.

The Current State of the Office Market 

There are several reasons for the steep rise in office conversions over the past 18 months.

The first and biggest is the current state of the US office market. While the office sector is showing signs of stabilization, it’s still struggling to regain its footing a full five years after the onset of the pandemic.

Return-To-Office Never Materialized

While the hope was workers would return to the office en mass once the pandemic ebbed, that still has not happened. Although the Federal government and some larger, high profile companies have mandated employees return to the office full time, including JPMorgan, Disney and Starbucks, as of June 4, 2025, Kastle System’s US 10-city average office occupancy rate was 54.3%, so barely over half of US workers were back in the office at that point, leaving many office buildings, especially older Class B, Class C and suburban office buildings, half empty. 

Office Vacancies Are Growing

In Q1 2025, the overall US office vacancy rate was 19%, up 110 bps YOY. Vacancy rates varied widely by market. Of major US cities, San Francisco had the highest office vacancy rate at 34.7%, followed by downtown Los Angeles at 31.8%, Seattle at 30.5% and Austin, TX at 29.2%.

Rounding out the gateway cities, Chicago’s office vacancy rate stood at 25.3%, the four main New York City submarkets averaged 23.9%, Boston’s was 17.5% and Miami’s was 15.4%.

Meanwhile, Ft. Myers/Naples boasted the lowest vacancy rate, just 4.1%. Savannah, GA had the second lowest, 5.2%, followed by Roanoke, VA at 5.9%.

A Record 1.1 Billion Square Feet of Vacant Office Space

Those sky-high vacancy rates translated to a record 1.1 billion square feet of vacant office space in the US as of Q1 2025, 55% more than before the pandemic. Urban central business districts have been especially hard hit as office demand has shifted to the suburbs and urban submarkets.

In spring 2024, the office vacancy rate in downtown urban cores ranged from 30%- 50%. In New York City alone, there was around 100 million square feet of vacant office space, the equivalent of nearly 35 Empire State Buildings, reports The New Yorker.

That DOGE, the Elon Musk-led, quasi-government entity tasked by President Trump with cutting federal government spending had through April 2025 terminated 653 leases totaling 7.56 MSF of office space —about 4.3% of all office space leased by the federal government, most of it located in big cities’ central business districts– certainly didn’t help the office sector’s persistent vacancy problem.

Office Vacancies Are Growing More Slowly

While the amount of vacant office space is still growing, it’s growing more slowly than it has. The 110 bps YOY increase in Q1 2025 was the lowest annual increase in two years and overall vacancy remained flat or declined in 30 markets quarter over quarter– small but hopeful signs for the office sector.

Office Net Absorption Still Negative, But Improving

In Q1 2025, net absorption for the office sector was -10.5 MSF. The giveback was primarily due to the uptick in vacancies, including the wave of federal government lease terminations, and an increase in lease renewals, especially by larger tenants. While negative absorption is never a good thing, the rolling four quarter average was a 48% improvement YOY and net absorption was positive for a third of US markets.

Amount of Office Sublease Space Still High, But Diminishing

In addition to a record amount of vacant office space in Q1 2025, there was 130 million square feet of office sublease space available, as many tenants sought to downsize their office footprints. While that was down 9.5% from a peak of 144 MSF in Q1 2024, it’s still a vast amount of space that’s bound to impact the office market and office absorption rates for years to come. However, the drop is an indication that demand for office space is finally starting to rebound.

The Flight to Quality Office Buildings

Class A and A+ office assets are faring much better than Class B and C buildings. In Q1 2025, the vacancy rate for prime office properties—Class A and AA buildings—was 14.8%, 4.2% below the overall office vacancy rate, reports CBRE.

In addition, in Q1 2025, four quarter rolling net absorption for Class A office buildings was higher than for the overall office market and up 55% YOY, reports Cushman & Wakefield.

Meanwhile, Kastle Systems reports that for the eight-week period ending June 18, 2025, occupancy for Class A+ office buildings was 76.9%, 23.4% higher than the 10-city average. On Tuesdays, the peak day for office occupancy, Class A+ buildings were 95.9% full versus the 10-city average of 64.2%, a sizeable 31.7% difference.

All these numbers reflect the “flight to quality” trend the office sector has experienced since the onset of the pandemic, where many occupiers are leaving older, outdated Class B and C office buildings for newer, higher quality Class A and A+ properties to help draw workers back to the office and recruit and retain top talent.

85.5 MSF of Office Leases Set to Expire

Expiring leases is another issue the office sector is grappling with. Trepp reports that 85.5 MSF of office leases, a massive amount of space representing 5.8% of CMBS office inventory, are set to expire in 2025. So far, tenants are sending mixed signals about whether they plan on downsizing their spaces and, if so, by how much.

The two tenants with the largest lease expirations so far this year, Fox Corporation and Fannie Mae, both downsized their square footage considerably, Fox by 13%, Fannie Mae by 48%. Yet, JLL reports that overall, office downsizing has been on a downward trend, dropping to just 6.6% of space on average in Q1 2025, another positive sign for the office market. Time will tell what the overall trend is.

Office Asking Rents Have Stagnated

Meanwhile, office asking rents have stagnated. According to Cushman & Wakefield, the average office asking rent in the US in Q1 2025 was $38.21 per square foot, about what it was in Q4 2024– $38.23 per square foot—and only 1.5% higher than in Q1 2024, when it stood at $37.66 PSF. As they have historically, office asking rents and rent growth vary widely by market.

Office Values Have Plummeted

All these factors have combined to crater US office values over the last several years. CRE Daily reports that between 2019 and 2023, total US office values plummeted by an astonishing $557 billion, with buildings in urban central business districts taking the biggest hit, a 52% drop in value, relative to offices in suburban and CBD adjacent markets. Goldman Sachs found that 4% of all US office buildings are no longer financially viable. In the cities most impacted by remote work, the number is even higher– 14%- 16%.

A Massive Wave of Office Loans Is Coming Due

While office values have plunged, a huge wave of office loans— about $64 billion– are set to mature by the end of 2026, according to Cred IQ, a commercial real estate data provider. Many of these loans originated when interest rates were much lower than they are now and the value of the office buildings collateralizing those loans were much higher, making refinancing a huge challenge for some borrowers. Lenders have modified or extended some $36 billion in CRE loans over the past three years to help manage their stress and that number could rise, depending on what happens with the economy, interest rates and the office market over the next two years.

Office Investment Is Rebounding

It’s not all doom and gloom for the office sector though. JLL reports that while office investment activity dropped precipitously from 2021- 2023, from approximately $90 billion to around $30 billion, it rebounded nicely to approximately $40 billion in 2024 and reached $11 billion in Q1 2025, a 60% increase from Q1 2024 and the largest YOY increase since 2022. Perhaps it’s a sign that after several bruising years, the office investment market is finally stabilizing.

Even so, the office sector isn’t anywhere near what it was before the pandemic, when it was considered one of commercial real estate’s best, safest bets. So, in a bid to turn around their troubled office assets, many of which will probably never be viable again, owners, developers and investors are increasingly eyeing a sector that is thriving and likely will be for years — multifamily.

Next, A Look at the Multifamily Sector

Up next, Part 8 in our series on multifamily conversions, which examines another key factor contributing to the recent spike in office to apartment conversions, the current state of the multifamily sector, which has remained one of commercial real estate’s bright spots for several years running.

More on Multifamily Conversions

In case you missed any of our previous posts on multifamily conversions, here are links to all of them and the topics they covered. Although some are a bit older and we have updates coming soon, they provide a helpful framework for understanding apartment conversions and the economic, social and commercial real estate trends that brought us to this point, some of which continue to drive conversion activity today:

Help With Your Apartment Conversions

If you’re involved in apartment conversions in any capacity —as a developer, owner, investor, broker, urban planner or civic leader— Realogic offers a wide range of services and customizable solutions that can help make your next adaptive reuse project an all-around success, regardless of whether it’s an office, hotel, retail or industrial conversion or something truly unique. Our best-in-class commercial real estate services and solutions include:

For more information, contact us at info@realogicinc.com or 312-782-7325

About the Author

Terry Banike is Vice President of Marketing for Realogic. Over the course of his career, he has worked in marketing, communications, journalism and public relations, and has written news stories and features for newspapers, trade publications, newsletters and blogs. A rabid reader of anything and everything on commercial real estate, Terry closely follows commercial real estate news and trends and frequently posts about real estate on the Realogic Blog. He can be reached at tbanike@realogicinc.com.

Sources:

  • Cushman & Wakefield; At A Glance: Office Sublease Space; North America | Q4 2021; February 2022
  • CNN; The US Mall is Not Dying; Eva Rothenberg; August 21, 2023
  • The Wall Street Journal; Owners Keep Zombie Malls Alive; Kate King; November 26, 2023
  • FDI Intelligence; Out of Office: US Vacancy Rates Hit Record High; Alex Irwin-Hunt; April 5, 2023
  • Hotel Conversions Take Top Spot In Adaptive Reuse; Mary Salmonsen; May 31, 2024
  • RentCafe; Adaptive Reuse Surges Again With 151K Upcoming Units; Hotel Conversions Overtake Offices in 2023; Veronica Grecu; May 7, 2024.
  • RentCafe; Apartments From Adaptive Reuse Projects to Exceed 120,000 in Upcoming Years, Despite Recent Slowdown in Office Conversions; July 24, 2023
  • RentCafe; From Boardrooms to Bedrooms: A Record 55K Office-to-Apartment Conversions Expected in Major Cities; Andreea Neculae; March 11, 2024
  • Multifamily Dive; Hotel Conversions Take Top Spot In Adaptive Reuse; Mary Salmonsen; May 31, 2024
  • Orange County Register; Malls Adding Apartments to Offset Dwindling Numbers of Shoppers; Jeff Collins; January 26, 2022
  • RentCafe; Record-Breaking 71K Units to Emerge from Office-To-Apartment Conversions; Florin Petrut; February 10, 2025
  • CBRE; Strong Office Conversion Pipeline Will Boost Business-Centric Downtowns; November 11, 2024
  • Multifamily Executive; Over 70K Units From Office-to-Apartment Conversions Are in the Pipeline for 2025; MFE Staff; February 12, 2025
  • CommercialEdge; Assessing Office-to-Residential Conversion Feasibility with CommercialEdge Research, Powered by Yardi; Timea-Erika Papp; August 22, 2024
  • Kastle Systems; Kastle Back to Work Barometer; 6/23/25
  • CBRE; Office Demand Remains Resilient in Q1; US Office; Q1 2025; April 30, 2025
  • Cushman & Wakefield; Marketbeat; United States; Office; Q1 2025
  • JLL; Office Market Dynamics; Research; United States; Q1 2025
  • CoStar; US Office Market Imbalance Could Mean 330 Million Square Feet of Opportunity; Candace Carlisle; March 15, 2023
  • CommercialEdge; May 2025 Office Market Report; CBD Office Markets Struggle Amid High Vacancies, Discounted Sales and Slowed Development; May 20, 2025
  • Wolf Street; Office Vacancy Rate in the US Worsens to Record 22.6% in Q1 Amid Federal Government Lease Terminations; Wolf Richter; April 25, 2025
  • The New Yorker; Can Turning Office Towers into Apartments Save Downtowns?; D.T. Max; April 29, 2024
  • Kastle Systems; Class A+ Occupancy Index; 6/23/25
  • Trepp; Over 265 Million Square Feet of CRE Leases Expiring in 2025- Industrial & Office Most Exposed; David Wegman; February 4, 2025
  • CRE Daily; $557 B Office Wipeout Reveals Diverging Urban, Suburban Markets; Han Lung; August 27, 2024
  • Goldman Sachs; Can Unused Office Space Become Residential Real Estate?; March 22, 2024
  • Fast Company; Here’s the real reason more empty offices aren’t being converted to apartments, says Goldman Sachs; March 7, 2024
  • Cred IQ; Maturity Wall Grows with $440 Billion Coming Due Over The Next Two Years; Michael Haas; January 31, 2025